Auto Loan Calculator
Plan your car purchase and understand your monthly payments with our comprehensive auto loan calculator
Monthly Payment
$0.00
Your regular monthly payment
Loan Principal
$0.00
Total amount financed
Total Interest
$0.00
Total interest over loan term
Vehicle Total Cost
$0.00
Vehicle price + taxes & fees - incentives
Total Loan Cost
$0.00
Principal + interest payments
Interest Rate
5.00%
Annual percentage rate
Additional Details
Down Payment
$0.00
Sales Tax
$0.00
Loan Term
60 months
Interest Rate
5%
| Month | Payment | Principal | Interest | Balance |
|---|
Understanding Auto Loans
An auto loan is a secured loan that helps you finance the purchase of a vehicle. The vehicle itself serves as collateral, which means the lender can repossess it if you fail to make payments. Understanding how auto loans work can help you make informed decisions and potentially save thousands of dollars over the life of your loan.
Auto loans typically range from 24 to 84 months (2-7 years), with interest rates varying based on your credit score, loan term, and whether you're buying a new or used vehicle. While longer terms mean lower monthly payments, they typically result in higher overall costs due to additional interest paid over time.
How Auto Loans Work
Auto loans follow a standard amortization schedule, where each monthly payment includes both principal (the amount borrowed) and interest. At the beginning of the loan, a larger portion of your payment goes toward interest, while near the end, more goes toward principal.
Impact of Loan Term on Interest Costs
This chart shows how choosing a longer loan term increases your total interest paid, even with the same interest rate.
*Example based on a $25,000 loan at 5% interest rate
Key Components of Auto Loans
Principal Amount
The initial amount borrowed to purchase the vehicle. This is typically the purchase price minus your down payment plus any fees or taxes rolled into the loan.
Interest Rate
The annual cost of borrowing expressed as a percentage. Lower credit scores typically mean higher interest rates. Rates are also generally lower for new cars than used cars.
Loan Term
The length of time you have to repay the loan, typically 36-84 months. Longer terms mean lower monthly payments but more interest paid over the life of the loan.
Monthly Payment
The amount you pay each month, which includes both principal and interest. It remains constant throughout the loan term for fixed-rate loans.
Understanding Auto Loan Formulas
Auto loans use standard amortization formulas to calculate monthly payments and total costs. Here are the key formulas used in auto loan calculations:
Monthly Payment Formula
P = L × r(1 + r)ⁿ ÷ ((1 + r)ⁿ - 1)
- P = Monthly payment
- L = Loan amount (principal)
- r = Monthly interest rate (annual rate ÷ 12, expressed as a decimal)
- n = Total number of payments (loan term in months)
Total Cost Formula
Total Cost = (Monthly Payment × Loan Term) + Down Payment
This gives you the total amount you'll pay, including principal, interest, and your initial down payment.
Loan-to-Value Ratio (LTV)
The loan-to-value ratio is an important metric used by lenders to assess risk. It's calculated by dividing the loan amount by the vehicle's value.
LTV Ratio = (Loan Amount ÷ Vehicle Value) × 100%
Most lenders prefer an LTV ratio of 80% or less. Higher ratios may result in higher interest rates or require additional collateral or insurance.
Factors Affecting Auto Loan Terms
Credit Score Impact
| Credit Score Range | Typical Interest Rate |
|---|---|
| Excellent (750+) | 2.5% - 3.5% |
| Good (700-749) | 3.5% - 5.0% |
| Fair (650-699) | 5.0% - 9.0% |
| Poor (600-649) | 9.0% - 15.0% |
| Very Poor (below 600) | 15.0% - 25.0%+ |
*Rates are approximate and vary by lender and market conditions
Vehicle Age
New vehicles typically qualify for lower interest rates than used vehicles. Loans for vehicles older than 7 years often have higher rates due to increased risk.
Down Payment Size
A larger down payment reduces your loan amount and LTV ratio, potentially qualifying you for better rates. Most experts recommend at least 20% down.
Loan Term Length
Shorter terms (36-48 months) typically have lower interest rates than longer terms (72-84 months), as they represent less risk to lenders.
Smart Auto Loan Strategies
The 20/4/10 Rule for Auto Financing
Put at least 20% down to reduce financing costs and avoid being "underwater" on your loan
Keep your loan term to 4 years or less to minimize interest and stay ahead of depreciation
Limit all vehicle expenses (payment, insurance, gas, maintenance) to 10% of your gross income
Tips for Getting the Best Auto Loan
Check your credit report before applying
Review for errors and take steps to improve your score if possible. Even a small increase can qualify you for better rates.
Shop around for rates
Compare offers from multiple lenders including banks, credit unions, and dealership financing. Most credit bureaus count multiple auto loan inquiries within 14 days as a single inquiry.
Get pre-approved
Secure financing before visiting the dealership. This gives you leverage during negotiations and helps you stick to your budget.
Focus on total cost, not monthly payment
Dealers may focus on monthly payments while extending the term. Calculate the total cost including interest to understand the true expense.
Frequently Asked Questions
Can I pay off my auto loan early?
Yes, most auto loans can be paid off early, potentially saving you money on interest. However, some loans may have prepayment penalties, so check your loan agreement. Even small additional payments toward the principal can significantly reduce your overall interest costs.
How does refinancing an auto loan work?
Refinancing involves taking out a new loan with better terms to replace your existing auto loan. It's often beneficial if interest rates have dropped, your credit score has improved, or you want to change your loan term. Refinancing can lower your monthly payment or reduce your total interest costs.
Should I choose a shorter or longer loan term?
Shorter loan terms typically have lower interest rates and result in less total interest paid, but have higher monthly payments. Longer terms offer lower monthly payments but cost more in total interest over time. As a general guideline, try to keep your loan term shorter than the time you plan to own the vehicle.
How much car can I afford?
A good rule of thumb is to keep all transportation costs (car payment, insurance, gas, maintenance) below 15-20% of your monthly take-home pay. The car payment itself should ideally be less than 10% of your gross monthly income. Remember to factor in insurance costs, which can be significant for newer or more expensive vehicles.
Is it better to finance through a dealer or a bank?
It depends on current promotions and your credit situation. Dealers sometimes offer special financing rates (even 0% APR) as incentives, especially on new cars. However, banks and credit unions often provide competitive rates, especially for used vehicles. It's best to shop around and compare offers from multiple sources before making a decision.